The city of Española owes the federal government late fees that may total tens of thousands of dollars on over five years of federal withholding payments, according to Acting City Manager Veronica Albin.
IRS officials paid City Hall a visit Dec. 17, and left behind the news that their office shows the city has been late in paying Social Security, Medicare and federal income taxes on several occasions since 2004, Albin said. For one two-week period, the IRS records show the city did not pay those taxes at all, she said.
When a municipality is late paying federal withholding, a late fee is imposed after a certain point, which differs depending on the specific payment schedule of the body in question, according to an employer’s tax guide provided by the IRS. Once it has paid the original tax, the entity will still owe the late fee, according to the guide. Until that fee is paid, both the fee and the original tax amount accrues interest, which the entity must pay IRS spokesman David Stell said.
That means since the city was unaware it owed a penalty at all, those amounts have been gathering interest for up to five years in some cases, Albin said.
Employers are required to withhold between 15 and 20 percent of an employee’s salary for tax-funded programs like Social Security, Medicare and federal and state unemployment benefits. The IRS can assess interest and up to a 15 percent penalty for unpaid federal taxes, federal law states.
The usual late fee amount for these three taxes is .5 percent per month on any unpaid balance, Stell said. The city’s budget forits portion of those taxes is $404,000 for the current fiscal year. The other portion is withheld from employee paychecks, but it is the city’s responsibility to withhold that money, Stell said. The city would owe a penalty and a compounding percentage of interest on the federal deposits made late.
Albin refused to disclose the exact amount listed on a report delivered by the IRS officials, but said calling it tens of thousands of dollars was a “pretty accurate” statement.
“I can’t tell you (how much we actually owe) because I don’t know it,” she said. “I need to verify the information they gave us, and I need to talk to (Acting City Attorney) Paula (Maynes) because I’m not sure how much of this is public information.”
A public records request to view the report was not fulfilled as of Tuesday night.
Stell would not comment on the city’s specific situation, citing a privacy statute that protects any specific taxpayer information from being disclosed to a third party by IRS officials. However, he said, it is almost impossible that this is the first time the IRS has notified the city about the late fees owed.
“We generally send more than one notice to the taxpayer that the tax is due,” Stell said. “We’re talking within months, not years.”
Albin said she was completely unaware that these late fees were owed, and as far as she knows, so was the Finance Department, which she has overseen off and on this year. The previous notices would have been sent to the individual responsible for handling city taxes, usually a finance director, Stell said. Copies of several notices sent to the city that were included in the IRS report were addressed only to the Finance Department, Albin said.
“So there’s no way to know who got them,” she said. “It could have been anyone in the finance department.”
The Finance Department has employed five finance directors since 2007, according to city documents, and two of those — Josie Lujan and Andrew Perkins — were fired from the city for alleged professional dishonesty. That makes it especially hard to know who would have been responsible for receiving any specific notices, Albin said.
Whoever that person was, they never brought those notices before the City Council, District 3 Councilor Chayo Garcia and Mayor Pro Tem Alice Lucero said. Along with Mayor Joseph Maestas, who is a former District 2 Councilor, Garcia and Lucero are the only two sitting Councilors who have been on the Council since 2004. Garcia was elected in 2003, Lucero in 2004.
“This never came up, not in the whole time I’ve been on the Council,” Garcia said. “I had no idea.”
The rest of the Council was informed of the late fees in closed session at its Dec. 22 meeting.
If the city does find documentation proving it either paid the tax, the amount owed was wrong or the tax was not owed at all, city officials can dispute the IRS report, Stell said.
“Our interest is getting the tax paid,” he said. “If there is real grounds for dispute, we would certainly work with the taxpaying entity to make sure the situation is straightened out.”
Should the city have to pay the fees, Albin said she does not plan to cut the budget to come up with the funds. Instead, she said she has a “revenue source” in mind, but would not disclose what that source was.